Cant think cleary about investment strategy. Investors trauma.

Discussion in 'Investment Strategy' started by Ambrosius, 27th Nov, 2019.

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  1. Ambrosius

    Ambrosius Active Member

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    Hi Everyone

    I find that my investment strategy has been quite the failure and am probably in some psychologically traumatized mode of thinking now with regards to investing. I was hoping somebody could relate their experience of a similar time and shed light on the way forward.

    But first our situation.

    I have bought and sold a couple of properties since 2004, renovated and rented and made some money and lost some more.

    1) Finally, we purchased in both names, a ppor property in Perth that we purchased for $740,000 and then we renovated it ourselves with blood sweat and tears, buying stuff for the reno off of gumtree or occasionally using tradies who at the time only wanted cash and no paperwork. All up there is probably $100k renovation for which there are no receipts.

    2) We bought the house with a $550k mortgage and began paying it down at 7.5% interest rate which declined, then I stupidly fixed interest at 5.79 and it went much lower, finally got out of it paying break costs and refinanced.

    3) Once it was all renovated and done after 2 years of living in it, we lost our jobs in the Perth downturn moved out of the country and became ex-pats and began paying rent to others which cost a fortune.

    4)This rent we paid to others I feel we should add to the cost of our mortgage, because we were paying rent to somebody, plus we were paying the bank interest. A double whammy.

    5) We rented the property out for 6 years and in June 2019 kicked the tenant out so that we did not exceed the 6-year rule. For the entire 5-6 years, we have been renting ourselves abroad and now, here in NSW as we chased employment. The property is vacant while I figure out what to do next.

    6) When I calculate how much money I have paid in property manager fees, stamp duty, bank fees and costs, refinancing, repairs, renovations and interest paid, plus rent I paid elsewhere and subtract this from tax refunds and rent received, when I was subsidising tenants to live there, the actual cost has been about $1,100,000. That's how much money I spent not living in it. If I don't include the rent that I paid to somebody else then perhaps it cost me about $1,050,000.

    7) My real estate agent in Perth reckons he could get me maybe $930,000 for it now as Perth has dramatically improved and people are buying. (4 months ago he said $810,000)

    8) The mortgage remaining on the property is $95,000 ($265,000 original loan amount with savings of about $165,000 in the offset account) and we are paying a 3.12% interest rate. Our combined takehome pay after tax is about $13,000.

    9) We have 3 children under 10 and are relocating in January 2020 to a regional location to be determined soon in northern NSW. My wife is sick of renting as am I but generally see that renting may be a good idea still. My wife is currently on $100k pus super while I am on $135k plus super. If we relocate she loses her job and has to find a new one. (very difficult to find a job for my wife in a regional location as a very specialised job, she might just take anything, look after kids or study ). If only I work my take-home pay after tax is about $7600 a month.

    10) We have $80k and $70k in superannuation. in the cash option since the beginning of the year in 2019, as we lost our entire super in the 2008 crash and things look too similar. I am 44 my wife is 38.

    11) If we sell the Perth house now we would not pay capital gains tax as it is vacant after 6 years as a ppor from which we had to move out of to seek employment. So equity would be:
    $930,000 sale price, minus agents fees $17,000, minus outstanding mortgage $95,000, leaving us with $818,000 equity. But this would be a loss of $282,000.

    13) I dont think holding it vacant is a good idea for another year in the hope that prices in Perth increase, besides would they increase by more than the rent increases?

    14) If I rent it out again, I have to pay capital gains tax since 2013, after all costs and the hassles of managing a property in another state it was only returning $1200 a month after all costs and its positive cash flow now that is no longer so appealing from a tax perspective to get tax deductions.

    15) My mate said it is possible to buy another house elsewhere and shift the debt onto the house in Perth and rent it out again and forego the capital gains tax lost, just pay it.

    16) My mortgage broker can give us a loan for $1,040,000 at 2.79% and use the equity in the Perth property for a deposit, so we can keep the Perth property vacant and not rented out. Then we can buy a property elsewhere.

    17) But part of me wants to make up for the lost decade and loss of 2008 superannuation plus future-proofing my retirement by waiting for the next crash and then putting all our money into a vanguard index stock instead, by selling everything and continuing to rent.

    The problem is I feel traumatized by the pain of holding the Perth property paying interest and never having money plus all the troublesome tenants and property managers and am paralyzed by what to do next. We are 5 people living in a rental that is a small cramped cold dump with no wardrobes and cupboards in order to live close to work and smash the mortgage and get out of trouble.

    Part of me just wants to sell the property in Perth and pay cash for the next ppor in the regional location but then depending how much we pay we might not have anything to put into stocks. If we buy a $600,000 property it is a dump again and not as liquid as the property closer to the beach and office but which costs $900,000.

    Do I just go and buy 3 reasonably cheap investment properties on the gold coast with land value but which are just sufficiently negatively geared to deduct the sweet spot of tax?

    Total decision paralysis and its taking my joy from me. Does anybody know of the absolute BOSS of financial planning anywhere in Sydney, Central Coast or Hunter region where I could go for advice before I make any moves?

    My kids have to start in a new school in the regional location in January 2020 so the clock is ticking, but my wife could stay behind and work for a month or 2 and fly back for weekends, to pay for the relocation and keep options open on new loan mortgage amount until we buy something. Banks will lend less if we cant show payslips for 6 months for both of us.

    This situation really is difficult for me to analyse as my emotions are raw from the difficulties of the last decade and a bit trying to keep head above water.
     
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  2. Lindsay_W

    Lindsay_W Well-Known Member

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    Yikes - you need to speak to a financial planner asap
     
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  3. thatbum

    thatbum Well-Known Member

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    So I don't really understand how the story of this Perth property has anything to do with the decision now. Well apart from the fact that maybe you shouldn't mix investment and personal interests/goals.

    I think that ultimately, you need to decide - do you want to invest with your capital? Or use it to buy a PPOR?

    And then if the decision is to invest - do it properly!
     
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  4. The Y-man

    The Y-man Moderator Staff Member

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    Ok - I am going to have a shot at simplifying this down so I don't get traumatised myself trying to understand it all!!

    Apologies if the following sounds a bit unsympathetic and harsh.

    Ok, well at about your age, my wife and I were earning about the same as you guys and we lost about $1m during the GFC.

    That's a whole different situation to you, but I do now believe that you can get back to where you were in half the time (because one thing you gain throughout and never lose is knowledge).


    Great - let's just put that aside as a learning for the moment (as in what sort of property, where etc etc etc).


    This is a PPOR we are talking about - get over it - it's a lifestyle thing. A bit like expensive cars and extravagant holidays. Don't view it as an investment - you spent, you enjoyed, could've spent less but hey....


    You were paying rent (and interest) but were also receiving rent right? That's not much different to the average rentvestor....


    Ok this is doing my head in (and probably yours).

    Next thing to get over - paying rent to someone - it's again called a lifestyle expense. Get over it. Take it out of your investing equations. It's no different to paying for a hotel when you're on holidays versus sleeping in a tent.

    Give us the straight out of pocket expense after everything. Even a super duper -ve geared prop shouldn't be bleeding more than $50k pa.


    Combined take home is $13k per month right?
    How much can you put aside out of that after (current) expenses?

    Let's not worry your minds with that for now.

    There - you've identified your pain. IMHO OFFLOAD it - it's killing you psychologically - it's called psychological baggage.

    Holy cow - where does the GC come into this thing???

    @Alex Straker posts here - I don't know him personally but maybe have a chat??

    Not trying to downplay the pain - like I said, been there, done that, sold half my IP portfolio to stop going bankrupt - but you guys are in a seriously strong financial position (I know that because you can borrow over $1m right now!!!)

    The relocation bits ... if you want some serious opinions, need to know exactly from where to where.....

    The Y-man
     
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  5. shorty

    shorty Well-Known Member

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    Are you serious? Your family income is $235k per annum and you pretty much own a 900k property outright. Salary sacrifice a bit more into super and get a grip man. Compared to much of Australia you're on a very good wicket.

    Relax and enjoy your life. Your perspective is way out of whack.
     
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  6. Kelvin Cunnington

    Kelvin Cunnington Well-Known Member

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    Even half that income would be heaven for 90% of our society.
     
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  7. Sackie

    Sackie Well-known cafe bum of the East Premium Member

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    You need to put things into perspective.

    Take stock of the assets you have to build wealth. Equity, income and serviceability. You have all 3. All you need to do is regroup and find a way to move forward.

    Before you can do any of that, you need to accept the past, deal with it in your mind and then decisively move on. A recalibration of your current mindset is key for your future success. Trying to make up gains for past losses is a one way ticket to disaster territory.
     
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  8. ellejay

    ellejay Well-Known Member

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    As everyone has said above, everything that is, just is. It's your thought pattern that makes it either okay or totally devastating. Take a step back and put things into perspective.
     
  9. NHG

    NHG Well-Known Member

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    Investing is 99% mindset / grit.
    Hell life is 99% mindset.

    I've lost $100's of k making mistakes, by leaving money on the table, and cold hard losses. Many more losses to come. Aint a upwards trajectory.

    images (11).jpeg
    Seeing this, and actually living it are two entirely unique experiences.

    That's my journey, yours is different.
    Life doesn't have sympathy.

    In the words of the great italian philosopher Rocky Balboa:

     
    Last edited: 28th Nov, 2019
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  10. Codie

    Codie Well-Known Member

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    Nailed it.

    Perspective is a mess. Even worse, expectation of where you should be and regret is the killer.

    @Ambrosius as shorty said you are in a VERY strong financial position, there's no reason why you cant scale up and be financially independent in the coming decade.

    I suggest you need to spend some time learning and getting further educated, this will help you piece things together easier and not get over whelmed. Get a clear goal, and then aim for it.

    There's plenty that could be done with the current Perth property, to leverage you into more assets, however your mind set seems to be holding you back and cutting away from this property and starting fresh with new goals and $800k may be a better option. After all what is the point of doing all of this if you cant sleep at night and are miserable.

    Only you can answer where you want to live and work, however where ever you choose, $800k would be an amazing fresh start into 2-3 high quality assets in good locations. You have the income, you have the equity, so aim for some very high quality properties that are going to grow.
     
  11. Curious2019

    Curious2019 Well-Known Member

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    @Ambrosius I think @The Y-man has covered this really well.

    What I would like to add is, it seems like you have a lot going on and there is some anxiety about how to proceed or take the next step. I think it could be of some value to chat to a friend, partner or professional to really unpack how you are feeling and the impact the weight of these big life and financial decisions are having on you at the moment. I know that when my anxiety is high, it is very difficult to make good, balanced decisions. Take some time to figure it out. Discuss alternative options with your partner/family. Ask for their thoughts and feelings too.

    Best of luck!
     
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  12. Ambrosius

    Ambrosius Active Member

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    Thank you everybody for your input. I read it all several times and decided to stay silent and simplify and not act in a rash manner.

    So I moved all my stuff into storage and we are now on holiday after an exhausting move and getting rid of so much stuff.

    I am deciding to live either in
    Byron Bay
    Lennox Head
    Ballina
    Alstonville
    Lismore

    I would appreciate your thoughts on these suburbs.

    We can both work in Ballina.
    So I have organised a furnished house in Ballina for $600 a week and with either party giving 2 weeks notice. Will live in that when kids start school while we think and understand the local area.

    so now I am not tied to a rental with a long lease and big break costs and can decide to either rent or buy and have 3 or 4 months to do so.

    I have kept the PPOR vacant and am making enquires about PERTH property market. It looks like PERTH property is recovering slowly.

    As soon as my holiday is over I will contact the financial planner suggested. Is there a good one in the Ballina area? I could also go to the Gold Coast or Brisbane if push comes to shove.

    I have looked at Ballina area property prices and they are astronomically high, looks like a bubble to me, anybody got boots on the ground there for a few years and can provide some insight? There are Sydney house prices there and there is nothing much to it. I do not know how people can afford to pay the rents there. A dump in West Ballina with mouldy carpets and dirty walls with a motorbike being repaired in the dining room is able to be advertised for $550 a week and several parties sign up for it. Whats going on?
     
  13. PandS

    PandS Well-Known Member

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    Maybe sell up settle down with your equity and buy a new PPOR, with your salary and debt free you could start put a side some saving each month and try ETF and live up a bit then maybe if you want buy more properties in a few years try again?

    just take it slow and one thing at a time?
     
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  14. Stoffo

    Stoffo Well-Known Member

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    Byron Bay - Trendy, popular, beach = expensive
    Lennox Head - Nice, beach, small community
    Ballina - Low lying, beach, medium community, employment prospects
    Alstonville - inland, small/medium community , not as popular
    Lismore - inland, larger community, employment prospects

    I'd choose somewhere you can both work in your chosen profession and not have to commute too far, then take into account schooling prospects in deciding exactly where to live.
    I'd be chatting to a broker long before I sat down with a financial advisor, knowing what you can afford to do is step 1, and they often answer more questions than you even think to ask (plenty of great brokers on here ;))
    Congrats on having had a work life balance :cool:
     
  15. TMNT

    TMNT Well-Known Member

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    jesus....i stopped reading half way but

    what a negative mindset, that mindset is not suited for investing PERIOD!

    "paying rent = a waste"
    "becoming expats chasing bigger $, and the rent paid during this period is a waste "
    "paying the PM to do their job to manage your investment = a waste

    add to that $235k income,

    im lost for words to be honest
     
    Last edited: 21st Jan, 2020
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  16. Ambrosius

    Ambrosius Active Member

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    I was reading other threads and these are some of the gems I came across.

    1)

    Q. When do you know it's the right time to sell a property?
    A. When you wouldn't buy it back for the price you sold it for.

    2)

    Using a property as a store of wealth.
     
  17. Trainee

    Trainee Well-Known Member

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    You cant rely on snappy slogans.

    If its an IP and you bought the property for half its current price, it will probably cost you 15%+ of the proceeds in agents fees and capital gains tax. Then what do you do with the money? Buy another property and its another 3-5% in costs.

    Price should not be the only reason for selling a property. There should always be additional reasons. Better places to put the money. Decreasing (or increasing) risk. Life events such as moving towards retirement.

    Your after growth, arent you? Your experiences in Perth should show you that this phrase needs a lot of conditions.
     
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  18. MTR

    MTR Well-Known Member

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    Curious, where is the property in Perth??

    Rent serms way too low for value???
     
  19. Ambrosius

    Ambrosius Active Member

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    $500 a week rent did not cover, interest payments, water for lawns, PM fees, land tax, council rates, repairs.

    I was subsidising a tenant to live there. That’s why it’s vacant now. Tenants and the laws make it very stressful to be a landlord from afar.
     
  20. TMNT

    TMNT Well-Known Member

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    not many/very few properties the rent will cover all the expenses, thats called cashflow positive which is highly unlikely for resi

    and there is that horrible investment mentality again,
    you are not suited for resi RE investment, PERIOD

    you are the sort of person that will have your own business, and if your employee drives a nicer car than you, will say "how dare you drive a nicer car than me, I am subsidising your car and lifestyle, you owe me"

    edit: land tax! you expect your tenant to pay your land tax!!!
     
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